United Bankshares, Inc. Announces Earnings for the Third Quarter and First Nine Months of 2016

WASHINGTON & CHARLESTON, W.Va.--(BUSINESS WIRE)--United Bankshares, Inc. (NASDAQ: UBSI), today reported earnings for the third quarter and the first nine months of 2016. Earnings for the third quarter of 2016 were $41.5 million or $0.54 per diluted share, as compared to earnings of $35.0 million or $0.50 per diluted share for the third quarter of 2015. Earnings for the first nine months of 2016 were $108.0 million or $1.48 per diluted share as compared to earnings of $104.5 million or $1.50 per diluted share for the first nine months of 2015.

“Third quarter and year-to-date 2016 earnings continue to be strong,” stated Richard M. Adams, United’s Chairman of the Board and Chief Executive Officer. “In addition, our annualized returns on average assets and average equity outperformed our latest peer group numbers.”

On June 3, 2016, United completed its acquisition of Bank of Georgetown of Washington, D.C. The results of operations of Bank of Georgetown are included in the consolidated results of operations from the date of acquisition. As a result, the third quarter and first nine months of 2016 were impacted by increased levels of average balances, income, and expense as compared to the third quarter and first nine months of 2015 due to the acquisition. At consummation, Bank of Georgetown had assets of approximately $1.3 billion, loans of $999.8 million, and deposits of $971.4 million. In addition, the third quarter and first nine months of 2016 included $924 thousand and $5.6 million, respectively, of merger-related expenses.

Third quarter of 2016 results produced an annualized return on average assets of 1.17% and an annualized return on average equity of 8.10%, respectively. For the first nine months of 2016, United’s return on average assets was 1.10% while the return on average equity was 7.73%. United’s Federal Reserve peer group’s (bank holding companies with total assets over $10 billion) most recently reported average return on assets and average return on equity were 0.88% and 7.66%, respectively, for the second quarter of 2016. United’s annualized returns on average assets and average equity were 1.12% and 8.14%, respectively, for the third quarter of 2015 while the returns on average assets and average equity was 1.14% and 8.25%, respectively, for the first nine months of 2015.

Net interest income for the third quarter of 2016 was $111.1 million, which was an increase of $14.8 million or 15% from the third quarter of 2015. The $14.8 million increase in net interest income occurred because total interest income increased $16.8 million while total interest expense only increased $2.1 million from the third quarter of 2015. Tax-equivalent net interest income, which adjusts for the tax-favored status of income from certain loans and investments, for the third quarter of 2016 was $112.6 million, an increase of $14.7 million or 15% from the third quarter of 2015 due mainly to an increase in average earning assets from the Bank of Georgetown acquisition and loan growth. Average earning assets for the third quarter of 2016 increased $1.6 billion or 14% from the third quarter of 2015 due mainly to a $1.3 billion or 15% increase in average net loans. Average short-term investments increased $56.2 million or 7% while average investment securities increased $190.9 million or 15%. The third quarter of 2016 average yield on earning assets increased 5 basis points from the third quarter of 2015 due to additional loan accretion of $2.6 million on acquired loans and higher market interest rates. Partially offsetting the increases to tax-equivalent net interest income for the third quarter of 2016 was an increase of 4 basis points in the average cost of funds as compared to the third quarter of 2015 due to the higher market interest rates. The net interest margin of 3.56% for the third quarter of 2016 was an increase of 3 basis points from the net interest margin of 3.53% for the third quarter of 2015.

Net interest income for the first nine months of 2016 was $312.1 million, which was an increase of $25.1 million or 9% from the first nine months of 2015. The $25.1 million increase in net interest income occurred because total interest income increased $28.3 million while total interest expense only increased $3.2 million from the first nine months of 2015. Tax-equivalent net interest income for the first nine months of 2016 was $316.6 million, an increase of $24.9 million or 9% from the first nine months of 2015. This increase in tax-equivalent net interest income was primarily attributable to an increase in average earning assets from the Bank of Georgetown acquisition and loan growth. Average earning assets increased $806.3 million or 7% from the first nine months of 2015 as average net loans increased $775.2 million or 9% for the first nine months of 2016. Average investment securities increased $24.9 million or 2%. In addition, the average yield on earning assets increased 5 basis points from the first nine months of 2015 due to additional loan accretion of $5.7 million on acquired loans and higher market interest rates. Partially offsetting the increases to tax-equivalent net interest income for the first nine months of 2016 was an increase of 2 basis points in the average cost of funds as compared to the first nine months of 2015 due to higher market interest rates. The net interest margin of 3.62% for the first nine months of 2016 was an increase of 3 basis points from the net interest margin of 3.59% for the first nine months of 2015.

On a linked-quarter basis, net interest income for the third quarter of 2016 increased $8.3 million or 8% from the second quarter of 2016. The $8.3 million increase in net interest income occurred because total interest income increased $10.1 million while total interest expense only increased $1.7 million from the second quarter of 2016. United’s tax-equivalent net interest income for the third quarter of 2016 increased $8.4 million or 8% due mainly to an increase in average earning assets from the Bank of Georgetown merger. Average earning assets increased $1.2 billion or 10% for the linked-quarter. Average net loans increased $684.6 million or 7% while average investment securities increased $165.9 million or 13%. Average short-term investments increased $341.9 million or 73%. Partially offsetting the impact of the increases in average earning assets for the third quarter of 2016 was a decrease of 10 basis points in the average yield on earning assets due mainly to lower yielding investment securities acquired from Bank of Georgetown and an increase of 3 basis points in the average cost of funds as compared to the second quarter of 2016. The net interest margin of 3.56% for the third quarter of 2016 was a decrease of 11 basis points from the net interest margin of 3.67% for the second quarter of 2016.

For the quarters ended September 30, 2016 and 2015, the provision for loan losses was $7.0 million and $5.2 million, respectively, while the provision for the first nine months of 2016 was $18.7 million as compared to $16.3 million for the first nine months of 2015. Net charge-offs were $6.8 million and $21.8 million for the third quarter and first nine months of 2016, respectively, as compared to $4.9 million and $16.3 million for the third quarter and first nine months of 2015, respectively. Annualized net charge-offs as a percentage of average loans were 0.26% and 0.30% for the third quarter and first nine months of 2016, respectively.

Noninterest income for the third quarter of 2016 was $19.0 million, which was an increase of $1.2 million or 7% from the third quarter of 2015. Income from bank-owned insurance policies increased $1.3 million due to two large death benefits recorded during the third quarter of 2016. Partially offsetting this increase was a decrease of $753 thousand in fees from deposit services due to less income from overdraft fees.

Noninterest income for the first nine months of 2016 was $53.4 million, which was a decrease of $2.1 million or 4% from the first nine months of 2015. The decrease was due to lower fees from deposit services as a result of the Durbin Amendment being effective for United on July 1, 2015. The Durbin Amendment, passed as part of the Dodd-Frank financial reform legislation, limits fees for debit card processing paid by merchants to banking companies with assets in excess of $10 billion. Fees from deposit services for the first nine months of 2016 declined $4.6 million from the first nine months of 2015. Partially offsetting this decrease was an increase in income from bank-owned insurance policies of $1.1 million due to the two large death benefits during the third quarter of 2016.

On a linked-quarter basis, noninterest income for the third quarter of 2016 increased $1.1 million or 6% from the second quarter of 2016. Income from bank-owned insurance policies increased $1.4 million due to the two large death benefits during the third quarter.

Noninterest expense for the third quarter of 2016 was $62.8 million, an increase of $5.1 million or 9% from the third quarter of 2015 due mainly to the Bank of Georgetown merger as most major categories of noninterest expense showed increases. In particular, employee compensation increased $1.5 million, employee benefits increased $793 thousand and net occupancy expenses increased $1.3 million. Total merger-related expenses of $924 thousand were incurred during the third quarter of 2016. In addition, other real estate owned (OREO) expense increased $573 thousand from the third quarter of 2015 due to a decline in the fair value of OREO properties. Partially offsetting these increases was a decrease of $504 thousand in equipment expense due to a decrease in maintenance costs.

Noninterest expense for the first nine months of 2016 was $185.7 million, an increase of $12.6 million or 7% from the first nine months of 2015 due in large part to the Bank of Georgetown merger. Employee compensation increased $5.4 million which includes $670 thousand of merger severance charges. Otherwise, employee compensation increased due to merit raises and a higher amount of employee incentives. Employee benefits increased $1.3 million mainly due to increased health insurance costs. Net occupancy expenses increased $2.2 million which includes $1.6 million for the termination of leases for closed offices. Other real estate owned (OREO) expense increased $1.7 million due to a decline in the fair value of OREO properties. In addition, other merger-related expenses of $3.4 million were incurred.

On a linked-quarter basis, noninterest expense for the third quarter of 2016 decreased $2.1 million or 3% from the second quarter of 2016 generally due to a decline of $3.5 million in merger-related expenses. In addition, OREO expense decreased $1.3 million due to fewer declines in the fair value of OREO properties. Partially offsetting these declines was an increase of $1.6 million in employee compensation due to additional employees from the Bank of Georgetown merger and a higher amount of employee incentives.

For the third quarter of 2016, income tax expense was $18.9 million as compared to $16.2 million for the third quarter of 2015. This increase was mainly due to higher earnings for the third quarter of 2016 and the release of tax reserves in the third quarter of 2015 due to the expiration of the statute of limitations partially offset by reduction in the current tax expense as a result of an increase in United’s deferred tax rate. For the first nine months of 2016, income tax expense was $53.1 million as compared to $48.7 million for the first nine months of 2015. On a linked-quarter basis, income tax expense increased $2.5 million due to higher earnings partially offset by reduction in the current tax expense as a result of an increase in the deferred tax rate. United’s effective tax rate was approximately 31.2% for the third quarter of 2016, 34.0% for the second quarter of 2016 and 31.6% for the third quarter of 2015. For the first nine months of 2016 and 2015, United's effective tax rate was approximately 33.0% and 31.8%, respectively. The lower effective tax rate in 2015 was due to historical tax credits recognized in the first quarter.

United’s asset quality continues to be sound. At September 30, 2016, nonperforming loans were $109.7 million, or 1.05% of loans, net of unearned income, down from nonperforming loans of $126.7 million or 1.35% of loans, net of unearned income, at December 31, 2015. As of September 30, 2016, the allowance for loan losses was $72.7 million or 0.70% of loans, net of unearned income, as compared to $75.7 million or 0.81% of loans, net of unearned income, at December 31, 2015. United’s allowance for loan losses as a percentage of non-acquired loans, net of unearned income at September 30, 2016 was 0.90% as compared to 1.00% at December 31, 2015. Total nonperforming assets of $141.9 million, including OREO of $32.2 million at September 30, 2016, represented 0.99% of total assets.

United continues to be well-capitalized based upon regulatory guidelines. United’s estimated risk-based capital ratio is 12.8% at September 30, 2016 while its estimated Common Equity Tier 1 capital, Tier 1 capital and leverage ratios are 10.1%, 12.1% and 10.5%, respectively. The regulatory requirements for a well-capitalized financial institution are a risk-based capital ratio of 10.0%, a Common Equity Tier 1 capital ratio of 6.5%, a Tier 1 capital ratio of 8.0% and a leverage ratio of 5.0%.

During the third quarter of 2016, United’s Board of Directors declared a cash dividend of $0.33 per share. United has increased its dividend to shareholders for 42 consecutive years. United is one of only two major banking companies in the USA to have achieved such a record.

United has consolidated assets of approximately $14.3 billion with 129 full service offices in West Virginia, Virginia, Maryland, Ohio, Pennsylvania and Washington, D.C. United Bankshares stock is traded on the NASDAQ Global Select Market under the quotation symbol "UBSI".

Cautionary Statements

The Company is required under generally accepted accounting principles to evaluate subsequent events through the filing of its September 30, 2016 consolidated financial statements on Form 10-Q. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of September 30, 2016 and will adjust amounts preliminarily reported, if necessary.

Use of non-GAAP Financial Measures

This press release contains certain financial measures that are not recognized under U.S. generally accepted accounting principles ("GAAP"). Generally, United has presented these “non-GAAP” financial measures because it believes that these measures provide meaningful additional information to assist in the evaluation of United’s results of operations or financial position. Presentation of these non-GAAP financial measures is consistent with how United’s management evaluates its performance internally and these non-GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the banking industry.

Specifically, this press release contains certain references to financial measures identified as tax-equivalent (FTE) net interest income, the allowance for loan losses as a percentage of non-acquired loans, tangible equity and tangible book value per share. Management believes these non-GAAP financial measures to be helpful in understanding United’s results of operations or financial position.

Net interest income is presented in this press release on a tax-equivalent basis. The tax-equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, United’s management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. United uses this measure to monitor net interest income performance and to manage its balance sheet composition. The tax-equivalent adjustment combines amounts of interest income on federally nontaxable loans and investment securities using the statutory federal income tax rate of 35%.

In accordance with accounting rules, United is unable to carry-over an acquired banking company’s previously established allowance for loan losses because acquired loans are recorded at fair value. Therefore, due to this acquisition accounting impact on the allowance for loans losses as well as loans, net of unearned income, management believes that excluding acquired loans in the calculation of the allowance for loan losses as a percentage of loans, net of unearned income reflects the difference in the accounting rules for acquired loans and originated loans as well as provides for improved comparability to prior periods and to other financial institutions without acquired loans.

Tangible common equity is calculated as GAAP total shareholders’ equity minus total intangible assets. Tangible common equity can thus be considered the most conservative valuation of the company. Tangible common equity is also presented on a per common share basis. Management provides these amounts to facilitate the understanding of as well as to assess the quality and composition of United’s capital structure. By removing the effect of intangible assets that result from merger and acquisition activity, the “permanent” items of common equity are presented. These two measures, along with others, are used by management to analyze capital adequacy.

Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as reconciliation to that comparable GAAP financial measure can be found in the attached financial information tables to this press release. Investors should recognize that United’s presentation of these non-GAAP financial measures might not be comparable to similarly titled measures at other companies. These non-GAAP financial measures should not be considered a substitute for GAAP basis measures and United strongly encourages a review of its condensed consolidated financial statements in their entirety.

Forward-Looking Statements

This press release contains certain forward-looking statements, including certain plans, expectations, goals and projections, which are subject to numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by such statements for a variety of factors including: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards.